Generally, it's not considered good manners to ask people how much money they make. But, with a new study out that criticizes Canada's mutual funds for the high fees they charge, that's a rule you might want to start breaking, at least when it comes to dealing with investment advisors and the products they sell.
The study came from Morningstar USA, a leading independent investment research firm that's widely considered the authority on mutual fund performance.
In this study, Morningstar looked at funds in 16 countries, and the bad news is, when it comes to mutual fund fees, Canada gets a grade of "F" because of the level of our MERs--Management Expense Ratios. These are fees that cover everything from the salary of the fund manager to compensation for the investment advisors, like yours perhaps, who buy these funds for their clients.
Oddly enough, the report didn’t cite specific numbers or averages so I did a little research myself. Depending on the year, I found the average Canadian equity fund has an MER of 2¼% compared to 1.42% for the average American fund.
Now the report does admit that in many countries some costs are not bundled exactly the way they are in Canada, so that may account for some of the difference between Canadian funds and others around the world. And in fairness, we rated up to a B- for our mutual fund industry overall due to the safe regulations in place. But even taking all that into consideration, it still seems that the fees here are higher than elsewhere in the world.
Why should you care about the fees your fund is charging?
The idea of investment in mutual funds is that they take a lot of the worry away that can be associated with investing. Why spend your time and energy trying to pick individual stocks or bonds when you can hand the job over to a professional fund manager? Plus, over 90% of Canadians who invest, own mutual funds.
But here's why these fees matter. When you look at rates of return for mutual funds, you have to remember that they are calculated after the management expense fees are taken off. So the fee represents money that's going to the mutual fund company and possibly to your investment advisor.
Let's look at a $100,000 portfolio earning 6 per cent after fees over 10 years compared to one making 5 percent after fees. The difference over a decade is $13,284 and change. So over the years, even a one percentage point difference in fees between one company or fund and another could have a big impact on the quality of your retirement for example!
I'm not suggesting for a moment that your financial professional should work for free. Everybody deserves fair compensation but the investor should be aware of what those fees are and what their advisor is providing in exchange for advice and planning services.
But what concerns me is that a recent Angus Reid Poll found that of the people who have money invested in mutual funds more than 50% had "no idea" what they were being charged. The industry shouldn't be satisfied with that; they should want their customers to be well informed.
So if MERs and investment fees are new to you or you think you need a refresher, here's three questions to ask your financial professional:
#1 - what am I invested in exactly and why?
#2 - what fees am I paying - for everything - with my investments? And an even better qualifying question would be, If I cashed out everything tomorrow, what fees, if any would I have to pay?
#3 - lastly, every advisor has a bias and is limited by the licenses that they hold. Ask your advisor what theirs are. If they aren't licensed to sell stocks and bonds (only mutual funds for example), chances are they aren't going to recommend them to you.
And if your advisor appears reluctant to answer these kinds of questions?
Don't be afraid to shop around and get a second opinion if you don't get the answers you're seeking. You have a right to know so start with a simply dig out your most recent investment statement and call to your advisor today.
Tuesday, July 14, 2009
Monday, July 6, 2009
Kids and Money
Okay parents. We're in full summer mode, the kids are out of school and are busy finding new ways to spend your money.
No matter how many times you try to tell them that money does not, in fact, grow on trees, the message isn't getting through.
But first, if you as a parent have a difficult time communicating with your kids about money, you're not alone.
I want to emphasize how important this is: with a recent study citing that our consumer debt in Canada has swollen now to over $1.3 trillion dollars and with over 75% of Canadians possessing less than 3 months savings in a bank account, these adult problems with likely be passed on to our children.
We need to teach kids how to save, spend wisely and respect credit. But many parents find it extremely difficult to talk about finances at home, more difficult than talking to their kids about sex. Money (and might I add the lack of money) is the new taboo of today.
The problem is, most parents don't know where to start. It's not enough to burst into the occasional rant and rave about the cost of things when the kids want money to spend on yet another new video game, or they want to buy an expensive pair of jeans. That's not teaching kids about finances. That's just teaching them to go away and try you again when you might be in a better mood.
Parents need to start talking to their kids on a everyday basis about money.
So here's some suggestions for initiating the "money talk" with your child while having a little fun.
Step one: at any age, I encourage parents to have a piggy bank for their child. This should be a fun and simple account that encourages dialogue about coins, cash and foreign money. To ensure your child always has some fun with spending during their lifetime, allow your child to freely purchase what they desire from this bank without your approval.
Step two: at the age of around 5 - 7, depending on your child, introduce a short-term savings account. Whatever cash flow comes into your child's life (birthday gifts, allowances, etc.), discuss with them what percentage will be allocated to the piggy bank (for their own spending) and how much will be designated for the short-term savings account. The idea here is to teach your child that there are things in life that need to be "saved up" for as in adulthood. Make a list with your child of all the activities or items they wish to have in the next 30-90 days (a swim pass for the summer, a new game or pair of jeans) and figure out which ones will take priority and how your child will save up for them. Have them participate in deciding which to cross off this list, add, etc.
This summer, also try using cash as much as possible when shopping with your child. My fear is that our children will grow up not thinking that money grows on trees, but in little plastic cards such as credit and debit cards. When making purchases with cash, explain to your child the tangibility of such items and how long mom and dad had to work to purchase "x".
Step three: at the age of 15 or 16, I strongly encourage parents to set up a mock credit card with their child. Once they hit 18 and can get a real credit card of their own, the innocent mistakes that can and are made out the gate can haunt them on their credit report for 6 years.
This is a fake credit card extended by the "bank of mom and dad", but make it as official as possible. How much credit you're extending (it may only be $50 or much more), the interest associated, payment due dates, etc. That way, any mistakes made by your child can be easily corrected by you and when they are ready for the actual credit card, they'll be comfortable with responsible use of it.
Lastly, consider designating a monthly family money meeting. Consistency is the key - every 1st or 15th of the month and it doesn't need to last long. Set aside 5 minutes or more to discuss what's on your child's mind regarding finances, investments and how they feel about money (maybe there's been a layoff in your family or with a friend's parent and they're feeling scared.) And parents, don't worry if you don't have all the answers. With the plethora of information on the Internet and the ease of Googling almost anything you'd wish to know, you can learn together.
No matter how many times you try to tell them that money does not, in fact, grow on trees, the message isn't getting through.
But first, if you as a parent have a difficult time communicating with your kids about money, you're not alone.
I want to emphasize how important this is: with a recent study citing that our consumer debt in Canada has swollen now to over $1.3 trillion dollars and with over 75% of Canadians possessing less than 3 months savings in a bank account, these adult problems with likely be passed on to our children.
We need to teach kids how to save, spend wisely and respect credit. But many parents find it extremely difficult to talk about finances at home, more difficult than talking to their kids about sex. Money (and might I add the lack of money) is the new taboo of today.
The problem is, most parents don't know where to start. It's not enough to burst into the occasional rant and rave about the cost of things when the kids want money to spend on yet another new video game, or they want to buy an expensive pair of jeans. That's not teaching kids about finances. That's just teaching them to go away and try you again when you might be in a better mood.
Parents need to start talking to their kids on a everyday basis about money.
So here's some suggestions for initiating the "money talk" with your child while having a little fun.
Step one: at any age, I encourage parents to have a piggy bank for their child. This should be a fun and simple account that encourages dialogue about coins, cash and foreign money. To ensure your child always has some fun with spending during their lifetime, allow your child to freely purchase what they desire from this bank without your approval.
Step two: at the age of around 5 - 7, depending on your child, introduce a short-term savings account. Whatever cash flow comes into your child's life (birthday gifts, allowances, etc.), discuss with them what percentage will be allocated to the piggy bank (for their own spending) and how much will be designated for the short-term savings account. The idea here is to teach your child that there are things in life that need to be "saved up" for as in adulthood. Make a list with your child of all the activities or items they wish to have in the next 30-90 days (a swim pass for the summer, a new game or pair of jeans) and figure out which ones will take priority and how your child will save up for them. Have them participate in deciding which to cross off this list, add, etc.
This summer, also try using cash as much as possible when shopping with your child. My fear is that our children will grow up not thinking that money grows on trees, but in little plastic cards such as credit and debit cards. When making purchases with cash, explain to your child the tangibility of such items and how long mom and dad had to work to purchase "x".
Step three: at the age of 15 or 16, I strongly encourage parents to set up a mock credit card with their child. Once they hit 18 and can get a real credit card of their own, the innocent mistakes that can and are made out the gate can haunt them on their credit report for 6 years.
This is a fake credit card extended by the "bank of mom and dad", but make it as official as possible. How much credit you're extending (it may only be $50 or much more), the interest associated, payment due dates, etc. That way, any mistakes made by your child can be easily corrected by you and when they are ready for the actual credit card, they'll be comfortable with responsible use of it.
Lastly, consider designating a monthly family money meeting. Consistency is the key - every 1st or 15th of the month and it doesn't need to last long. Set aside 5 minutes or more to discuss what's on your child's mind regarding finances, investments and how they feel about money (maybe there's been a layoff in your family or with a friend's parent and they're feeling scared.) And parents, don't worry if you don't have all the answers. With the plethora of information on the Internet and the ease of Googling almost anything you'd wish to know, you can learn together.
Catch me on CBC radio nationally
Starting July 2nd, you can now catch me weekly on CBC radio nationwide! Tune in Thursday's and please check your local station for air times. Cities included are: Whitehorse, Winnipeg, Victoria, Toronto, Quebec City, Regina, Vancouver, New Brunswick, Ottawa, Calgary, Thunder Bay, Edmonton, Montreal, Windsor, Charlottetown, Halifax, Cape Breton, and St. John's.
I'll still be in studio with the fabulous Peter Brown for Edmonton's Radio Active every Thursday at 4:10 MST. Over the summer, Peter and I will be answering YOUR financial questions. Please email me at wealth@kelleykeehn.com if you have a money problem on your mind.
I'll still be in studio with the fabulous Peter Brown for Edmonton's Radio Active every Thursday at 4:10 MST. Over the summer, Peter and I will be answering YOUR financial questions. Please email me at wealth@kelleykeehn.com if you have a money problem on your mind.
Tuesday, June 23, 2009
Intelligent frugality tip #3 - go out for dinner but drink at home
Even the recession won't force me give up my summer cocktails! And when did prices skyrocket for a glass of wine at a restaurant?
This summer, consider enjoying the outdoor patios of your city, having a meal out now and then, but enjoying your beverages (when possible) at home. For the price of one glass of wine at a restaurant, you can purchase nearly an entire bottle to enjoy with your friends or loved ones in your own back yard.
And it goes without saying, please enjoy responsibly!
This summer, consider enjoying the outdoor patios of your city, having a meal out now and then, but enjoying your beverages (when possible) at home. For the price of one glass of wine at a restaurant, you can purchase nearly an entire bottle to enjoy with your friends or loved ones in your own back yard.
And it goes without saying, please enjoy responsibly!
Friday, June 19, 2009
Intelligent frugality tip #2 - valuing your time.
Do you know what your time is worth? I see so many thrifty individuals proudly wearing their deal seeking badges, but some times I shake my head at their efforts when they forget to factor in the tangible value of their time.
I had a friend the other year, who's annual income is over $100,000, brow beat a consignment store for 30 minutes on a dress that cost $20 down to $10. As she told me the story, she was quite proud of herself until I pointed out that she's paid roughly $50 an hour, so that 30 minutes cost her $25 to save $10. Not intelligent frugality as far as I'm concerned.
What's the real cost of that deal? A family member of mine drives all over town and miles to get the "best" price on gas. He too wears his barging finding skills as a badge. As a very successful business owner, I calculated that his hourly wage is about $98 an hour and he'll often use up 40 minutes in traffic to save a few dollars at the pump.
Watch for discounts even after you buy! One case of intelligent frugality that impressed me was that of a friend's son. He was a student and had some extra time on his hands. He saved up for a big screen TV to the tune of about $2,000. When he bought it, he asked if it went on sale, would he then get the sale price? The manager told him that yes, if it dropped down within 30 days after he purchased it, they'd refund him the difference. It only took a little time to pay attention to the flyer that came in the mail and this fellow found a sale price twice in the month and the cumulative refund was over $150 which he then used for a lovely dinner out with his girlfriend. Even if he had been earning a sizable hourly wage, the few minutes it took to keep an eye on the flyers which came in the mail anyway and the relatively small hassle of revisiting the store for the refund is well worth a sizeable savings.
Hire it out! A smart spending decision, even in a recession, is to consider that you can hire out. You might think hiring a cleaning company for your home is extravagant, but consider all you could do if you had a couple of extra hours a week? If you're earning say $30 an hour and a cleaner is $20 an hour, this could be a wise spending decision. You could use the free time to upgrade your education, have more time with your children or take a much needed break. If you're not earning enough to justify the cost, start a networking group with your friends and see if you can swap services that the other despises. You might love cooking and making a little extra each week to prepare frozen meals for one friend that would enjoy returning the service by painting your deck could be a winning proposition.
Remember to know your worth and value your time - it's just as precious as money!
I had a friend the other year, who's annual income is over $100,000, brow beat a consignment store for 30 minutes on a dress that cost $20 down to $10. As she told me the story, she was quite proud of herself until I pointed out that she's paid roughly $50 an hour, so that 30 minutes cost her $25 to save $10. Not intelligent frugality as far as I'm concerned.
What's the real cost of that deal? A family member of mine drives all over town and miles to get the "best" price on gas. He too wears his barging finding skills as a badge. As a very successful business owner, I calculated that his hourly wage is about $98 an hour and he'll often use up 40 minutes in traffic to save a few dollars at the pump.
Watch for discounts even after you buy! One case of intelligent frugality that impressed me was that of a friend's son. He was a student and had some extra time on his hands. He saved up for a big screen TV to the tune of about $2,000. When he bought it, he asked if it went on sale, would he then get the sale price? The manager told him that yes, if it dropped down within 30 days after he purchased it, they'd refund him the difference. It only took a little time to pay attention to the flyer that came in the mail and this fellow found a sale price twice in the month and the cumulative refund was over $150 which he then used for a lovely dinner out with his girlfriend. Even if he had been earning a sizable hourly wage, the few minutes it took to keep an eye on the flyers which came in the mail anyway and the relatively small hassle of revisiting the store for the refund is well worth a sizeable savings.
Hire it out! A smart spending decision, even in a recession, is to consider that you can hire out. You might think hiring a cleaning company for your home is extravagant, but consider all you could do if you had a couple of extra hours a week? If you're earning say $30 an hour and a cleaner is $20 an hour, this could be a wise spending decision. You could use the free time to upgrade your education, have more time with your children or take a much needed break. If you're not earning enough to justify the cost, start a networking group with your friends and see if you can swap services that the other despises. You might love cooking and making a little extra each week to prepare frozen meals for one friend that would enjoy returning the service by painting your deck could be a winning proposition.
Remember to know your worth and value your time - it's just as precious as money!
Wednesday, June 17, 2009
Intelligent frugality tip #1 - is buying organic worth the extra cost? Part one.
Last week, I had the honour to be a co-panellist with Dr. Ruth Collins-Nakai for the WXN Network. Dr. Ruth as she's affectionately referred to by her patients is not only one of Canada's premier wellness experts, she's also the past president of the Canadian Medical Association with a resume as impressive as she is delightful.
As Dr. Ruth shared her wisdom and nutritional insights, she vented her frustration with the food industry likening them to the stunts of the tobacco companies. She told us that if you were to locate a cereal box from 20 years ago, you'd see that most did not add salt or sugar to their products. Today, she lamented that you'd be hard pressed to find one that didn't add salt and sugar.
Her reasoning for this deceptive behaviour is that most cereal makers also sell beverages such as juice and pop. She explained, and I won't even try, how a person's insulin spikes from excess sugar which then make us hungry (we then eat foods with excess sodium) and of course, salt makes us thirsty. Thus, these food manufacturers have their products covered. Sugar to make us hungry, salt in the food to make us thristy, more sugar, etc. and the spiral of obesity continues.
She implored attendees to never eat processed food.
I beamed, sat up with a smirk on my face and nearly patting myself on the back for the fact that I rarely eat processed, fried or fatty foods and mostly made the healthiest of choices - or so I thought. Why I also read the label in supermarkets and take the experts advice to avoid the middle isles (focusing on veggies, fruit and not the packaged junk in the centre.)
I've had a break recentsly from work travel and have been in Edmonton enjoying the very warm weather we've had over the past few weeks and with a busy as ever schedule, have switched to my summer menu. After hearing Dr. Ruth's sage advice that morning, I further gloated to myself how healthy my dinner was that evening, even though it was prepared on the fly.
I had a vine ripened tomato and lettuce sandwich on whole wheat bread, a whole (but small) jar of salsa (lots of cayenne pepper for the metabolism and other health benefits), a quasi guacamole, a very small amount of sour cream and copious amounts of multi grain chips. Scrumptious, low in bad fats and what I thought was a perfectly healthy summer meal.
As someone who's always read the label for saturated fats and high calories, I thought I'd better have a look at the other label items from my meal.
From my viewpoint, it was as fresh and healthy as one could hope for. Oops, I forgot about the prepared salsa and yep, the chips. As I investigated further (and I'm not counting the other items as they were fresh other than the sour cream), here's what I found:
As Dr. Ruth shared her wisdom and nutritional insights, she vented her frustration with the food industry likening them to the stunts of the tobacco companies. She told us that if you were to locate a cereal box from 20 years ago, you'd see that most did not add salt or sugar to their products. Today, she lamented that you'd be hard pressed to find one that didn't add salt and sugar.
Her reasoning for this deceptive behaviour is that most cereal makers also sell beverages such as juice and pop. She explained, and I won't even try, how a person's insulin spikes from excess sugar which then make us hungry (we then eat foods with excess sodium) and of course, salt makes us thirsty. Thus, these food manufacturers have their products covered. Sugar to make us hungry, salt in the food to make us thristy, more sugar, etc. and the spiral of obesity continues.
She implored attendees to never eat processed food.
I beamed, sat up with a smirk on my face and nearly patting myself on the back for the fact that I rarely eat processed, fried or fatty foods and mostly made the healthiest of choices - or so I thought. Why I also read the label in supermarkets and take the experts advice to avoid the middle isles (focusing on veggies, fruit and not the packaged junk in the centre.)
I've had a break recentsly from work travel and have been in Edmonton enjoying the very warm weather we've had over the past few weeks and with a busy as ever schedule, have switched to my summer menu. After hearing Dr. Ruth's sage advice that morning, I further gloated to myself how healthy my dinner was that evening, even though it was prepared on the fly.
I had a vine ripened tomato and lettuce sandwich on whole wheat bread, a whole (but small) jar of salsa (lots of cayenne pepper for the metabolism and other health benefits), a quasi guacamole, a very small amount of sour cream and copious amounts of multi grain chips. Scrumptious, low in bad fats and what I thought was a perfectly healthy summer meal.
As someone who's always read the label for saturated fats and high calories, I thought I'd better have a look at the other label items from my meal.
From my viewpoint, it was as fresh and healthy as one could hope for. Oops, I forgot about the prepared salsa and yep, the chips. As I investigated further (and I'm not counting the other items as they were fresh other than the sour cream), here's what I found:
- One full jar of Western Family fire roasted salsa contained only 126 calories, 0 fat, 0 cholesterol but a whopping 2,386.80 mg of sodium - that's 94.5% of my daily allowable limit according to the label - yikes!
- The chips - and I figure I ate about 40 chips - that accounted for 540 calories, 26 grams of fat (but only 2 grams of saturated fat), 10 grams of fiber (they were the multi grain chips) or 40% of my daily recommended amount and 0 cholesterol. So again, I though I was doing pretty well. As for the sodium, again, it was higher than expected at 300 mg or 12% of my daily limit.
Even though I rarely purchase boxed cereal, frozen meals or eat at fast food restaurants, I figured I was eating better than most. Apparently, what we think is healthy can be deceiving.
The point of this missive is that your health is the most imporant investment on the market. Without it or life itself, money is literally worthless! To cheap out on our health and what we ingest would be the silliest of frugality stances.
I'll be heading out to the market in the coming week or so and will report back whether or not organic is really worth the extra cost (based on my menu of chips and salsa and a few other items), the health factor and what the actual cost will be.
Stay tuned for part two shortly.
Intelligent frugality - the new chic or just cheap?
With the recession continuing to loom in the news (although, I'm not sure how real it is in provinces like Alberta where everyone continues with the busyness plague and packed restaurants), I've been testing ideas for over a year now on ways to save money while still having fun.
The funny thing about focusing on cutting spending, getting a better deal or being more efficient with what you have actually becomes contagious.
There was a time, OK, pretty much my entire life (until a couple of years ago), that I recoiled at the word "frugal". I equated it with cheapness, lack, too much work and basically, just something that wasn't for me.
Boom, now bust, our economy and my consumer advocacy role in the media recently has forced me to economize to teach my readers, viewers and listeners how to save money.
However, over the past year or so of living what I preach, I've discovered that there's an enormous difference between being frugal (or use whatever adjective you'd like for the down right thrifty), and being smart about saving money - what I call Intelligent Frugality.
So, over the summer months, I'm going to share with you my tips and insights for saving money and time but with a more educated & playful spin.
Stay tuned!
The funny thing about focusing on cutting spending, getting a better deal or being more efficient with what you have actually becomes contagious.
There was a time, OK, pretty much my entire life (until a couple of years ago), that I recoiled at the word "frugal". I equated it with cheapness, lack, too much work and basically, just something that wasn't for me.
Boom, now bust, our economy and my consumer advocacy role in the media recently has forced me to economize to teach my readers, viewers and listeners how to save money.
However, over the past year or so of living what I preach, I've discovered that there's an enormous difference between being frugal (or use whatever adjective you'd like for the down right thrifty), and being smart about saving money - what I call Intelligent Frugality.
So, over the summer months, I'm going to share with you my tips and insights for saving money and time but with a more educated & playful spin.
Stay tuned!
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